Gab Decision 017
May 28, 1976 St. Landry Parish School Board, Opelousas, Louisiana;
Grant No. OEG-6-72-0556 Audit Control No. 75-4; Docket No. 75-4 Dukes,
David; Malone, Thomas Mason, Malcolm Panel Chairman
This appeal involves Emergency School Assistance Program (ESAP-II)
grant assistance for special community activities.
On February 27, 1975, the Regional Commissioner, Office of Education,
Region VI, disallowed two items of expense which had been questioned in
an audit report, namely, Contracted Services, $726, in the absence of a
prior approval, and Salaries, $18,544, found to violate the no supplant
provisions.
The letter of disallowance advised the grantee that the decision may
be appealed to this Board in accordance with the provisions of 45 CFR
Part 16. Grantee appealed by letter dated March 25, 1975. Francis D.
DeGeorge, then Chairman of the Board, accepted jurisdiction of the
matter and the case was referred to the Agency involved for comment
which was received. Thereafter, in an effort to complete the file and
to narrow the issues, the Executive Secretary wrote to both parties
outlining the facts and issues as they appeared from the file and
invited both parties to brief any issues in the case and, without
limitation, to address nine specific questions that appeared to be
raised by the file. The parties' responses addressed the nine specific
questions but substantially failed to brief other issues raised by the
Executive Secretary's letter.
Both parties agreed without material comment, except as noted below,
that the Executive Secretary's summary of the facts and issues is not in
any material respect inaccurate or incomplete.
The Regional Commissioner, however, in his response takes the
position that the Emergency School Assistance Program is not included in
the list of programs in the Appendices to 45 CFR Part 16 and states: "It
would appear, therefore, that subject grantee does not have the right of
appeal." As noted above, the Regional Commissioner and the then Chairman
of the Board both made the preliminary judgment that the grantee did
have a right to appeal. The programs with current authority to make
grants listed in the Appendices are subject to change from day to day as
program authorizations may be added by legislation and old ones may
expire or be replaced. The Appendices are a useful checklist but it is
not possible nor was it contemplated that they should constitute a
definition of the Board's jurisdiction which, instead, is defined in 45
CFR 16.2 and applies so far as is relevant to: "(1) Any program which
authorizes the making of direct discretionary project grants . . ."
Since the program in question involves a direct discretionary project
grant and the decision appealed from was made after the effective date
of the Board's Charter, the grantee does have the right of appeal to
this Board.
Contracted Services -- $726
The applicable regulations contain two separate provisions which the
parties separately point to as controlling. The grantee entered into an
agreement with a consulting firm for consultant services in connection
with an Office of Education review during December 1971 and billed for
the services of two consultants, a total of 40 hours at $15 an hour,
plus travel and overhead, a total of $726. Each consultant worked a
maximum of six hours in one day. (We construe the $100 per day rule, in
analogy to the rule governing Federal consultants under 5 U.S.C.
3109(b), as applying to maximum compensation in any one day rather than
as equivalent to a rate of $12.50 per hour.)
The grantee contends that these services are governed by the General
Terms and Conditions of the Emergency School Assistance Program, Article
26, entitled Use of Consultants. This provision requires prior written
approval only for the use of and payment to consultants whose rates will
exceed $100 a day. There appears to be in other cases no requirement
for prior written approval but the requirements are that hiring and
payments shall be in accordance with applicable state and local laws and
regulations and grantee policies and that grantee must maintain a
written report for the files on the results of all consultations charged
to the grant. This report must include as a minimum
the consultant's name, date and amounts charged to the grant,
the names of the grantee's staff to whom the services are provided,
and the results of the subject matter of the consultation.
The Agency does not contend that the provisions of Article 26 have
not been complied with. It contends instead that the applicable
provision is not Article 26, but Article 18, captioned Service
Contracts. This provision requires that contracts for the provision of
part of the services under the grant by agencies or institutions other
than grantee shall be specified in the project proposal or in an
amendment thereto and the proposed contract submitted to the grants
officer for his written approval. Assuming the applicability of this
paragraph, no substantive reason has been indicated (although we asked)
why after the fact approval would not have been meritorious. The
Agency's position is that since the regulations do not provide for
retroactive approval of subcontracts, it would not be possible to
approve such subcontracts at this time. There is no occasion to decide
this question of the validity of retroactive approval under the terms of
Article 18 and OE regulations generally.The essential issue is whether
the consultant contract is a service contract.
The essential thought involved in Article 18 is that the grantee is
responsible for the services to be provided with Federal funds. To
assure that the grantee does not, in delegating its functions, abdicate
its responsibility, Article 18 provides with care for specification of
the intention to make such delegations in the project proposal or in an
amendment and requires approval of the contract in writing by the grants
officer. Additionally, it requires explicit incorporation, in the
contract delegating such services, of the grant terms and other rules
and regulations applicable to the program and provisions, assuring that
the grantee will retain supervision and administrative control over the
provision of services under the contract. As applied to services
provided by the grantee to the public this section serves an appropriate
and important purpose. It does not make sense, however, if applied to
consultant services rendered not to the beneficiaries but to the grantee
itself nor would it make sense as applied to other services rendered in
the grantee's own housekeeping function, such as contracted janitorial
services.
The reasonable reading of these provisions is that Article 18 governs
delegated functions servicing the public, remedial and other services to
meet the special needs of children in schools which are affected by
desegregation plans, special services for gifted and talented children,
guidance, counseling, and other pertinent services for pupils, and other
services central to the purpose of the grant. Article 26 independently
governs consultant services rendered to the grantee. If there were
doubt of this result, the existence of separate provisions tends to
confirm this view and the grantee should not be held responsible for a
lack of clarity for which the draftsman or the administrator is
responsible.
The program officer wrote to the grantee advising it that "all
subcontracts, whether they be with a university, universities,
consultant firms, contractors, or many other areas, must be approved in
writing by the contracts officer in Dallas before they are legal and
binding under the ESAP-II grant you are operating this year." (June 23,
1972).
Both parties, however, expressly agree that this letter does not
affect the legal requirements and does not add to the requirements of
the general terms and conditions.
The grantee asserts that the consultants were used in connection with
evaluation, an item specifically written into the project and the
approved budget. Thus, the relevant part of Article 18, if it were
considered applicable at all, is not the provision for specification in
the project proposal, but the requirement that the contract itself be
submitted in advance for approval.
As we have previously noted in Point Park College, Docket No. 75-12,
Decision No. 16, requirements for advance approval when not mandatory
are nevertheless frequently abused in grant administration. Their
unnecessary proliferation should not be encouraged and in case of doubt
advance approval requirements not plainly warranted by the nature of the
case should not be read into ambiguous provisions. See 45 CFR 74.150.
Compare paragraph 1 of Attachment O to OMB Circular A-102 and to
proposed Circular "A-102 1/2" 34 CFR Part 258, 40 FR 6304, 6311
(February 10, 1975). In this case the advance approval requirement of
Article 18 is not applicable by a reasonable construction of the
intended scope of Article 18 nor by the underlying purpose which 18
serves. The common sense of the situation is plainly served by the
application of Article 26 and the contrary reading is not only unfair to
a grantee who appears to have acted in good faith in an altogether
reasonable reading of the regulations but constitutes the imposition of
a burdensome requirement not serving the basic purposes of the program
or good grant administration.
Salaries -- $18,544 (No Supplant Provision)
Maintenance of effort and no supplant clauses in varying forms have
been part of Federal grant program statutes and regulations since the
middle 1930's. No supplant clauses very similar in wording to those now
in use have been incorporated in statutes since the 1960's. With
varying emphases the basic purpose of those requirements is to preclude
use of Federal funding as a device by which the grantee unilaterally
divests itself of a continuing responsibility in a field of activity
which the Federal Government by its grant program intends to assist but
not assume full responsibility for.
Several years ago this entire subject was carefully studied by the
Grants Administration Advisory Committee and by the Department.
So far as relevant it may be fair to sum up the results of this
extensive inquiry as indicating that the maintenance of effort form of
clause has fairly objective testable meaning which relates to the
overall level of grantee expenditures in the field in question as
compared with a base period. The no supplant clause, while directed at
essentially the same goal, was seen to be less objective, less testable
and intended not so much for rigorous enforcement on fiscal audit as for
a substantial compliance test and an advance planning basis. That is to
say, that no supplant clause is appropriately applied at the outset of a
program to require budgeting that shows a continued or increased level
of effort, to require assurances by the grantee of good intentions in
this respect, to require substantial compliance and good faith. But it
does not intend and is not susceptible of meticulous item by item
enforcement on fiscal audit.
The OE Title I Audit Hearing Board in the Appeal of the State of
Nebraska, Title I, ESEA (Docket No. 8-(10)-74) considered a contention
by the State that the term supplanting was ambiguous and its
interpretation not free from doubt. The Hearing Board concluded that
there was not any reasonable doubt in a case in which projects conducted
by local education agencies, entitled to reimbursement from State funds
for a portion of certain costs, were instead financed wholly with Title
I funds (PP15-17).
Although no supplant clauses have continued to flourish, they have
not been given sharper meaning either by clarification of the statutory
language or by substantially more specific regulations, and we have not
had any response from the Regional Commissioner to our inquiry as to
whether the no supplant clause is sufficiently clear to be enforceable
in the present context.
Against this background we may examine the terms of the no supplant
clause involved in the present case.
The no supplant rule applicable to the ESAP is contained in the
Office of Education Appropriation Act of 1971, PL 91-380. It contains
two elements:
". . . no part of the funds contained herein shall be used . . . (b)
to supplant funding from non-Federal sources which has been reduced as
the result of (1) desegregation or (2) the availability of funding under
this head; . . ." (numbering added).
In fact, funding from non-Federal sources steadily increased during
the grant period (August 1971 - February 1973) from the level prior to
grant award. Total instructional salaries funds from non-Federal
sources in the four schools now in question (omitting Grolee Elementary
School in which supplanting is conceded) increased as follows:
1970-71 1971-72 1972-73 $861,609
$946,376 $973,753
Total expenditures for the entire system increased:
1969-70 1970-71 1971-72 1972-73
$10,384,932 $13,203,092 $15,348,369 $17,921,619
Since funding from non-federal sources was not reduced but increased,
it is obvious that no part of the grant funds was used to supplant
funding from non-federal sources reduced as the result of desegregation
or reduced as the result of the availability of the grant funding.
The statutory test is amplified by the regulations issued to
effectuate it, 36 Fed. Reg. 16546, 16548 (45 CFR 181.6(a)(4)). These
regulations require from the grantee certain assurances. The first is
that the Federal funds made available under the program will be so used
as to supplement and, to the extent practical, increase the level of
funds that would, in the absence of such Federal funds, be available to
the applicant from non-Federal sources for purposes which meet the
requirements of the program, and in no case to supplant such funds.
The significant elements of this test are first, that it clearly
deals with level of funding, not with individual expenditures, and
second, that it deals with a necessarily hypothetical test ("funds that
would, in the absence of such Federal funds, be available for purposes
which meet the requirements of the program") and thus does not invite or
contemplate hard comparisons but only general indications of good faith.
This reliance on general indications is consonant with the spirit of the
Memorandum of Understanding between OEO and HEW with respect to this
program which was conducted, in part, under a delegation from OEO:
". . . measures shall be taken to assure compliance with the
provisions of section 225(c) of the (Economic Opportunity Act of 1964)
relating to non-Federal share and maintenance of effort. In view of the
fact that this is an emergency program designed to aid school districts
which have for the most part already firmed up their budgets for the
coming school year, it is understood that HEW may desire to waive the
formal non-Federal share requirements otherwise imposed by section
225(c) and to rely instead on the school districts' general commitment
to the purposes of the program."
The second assurance required is that Federal funds made available
under the program will not be used to supplant funds which (a) were
available to the applicant from non-Federal sources prior to the
implementation by the applicant of an order or plan for desegregation
and (b) have been withdrawn or reduced as a result of desegregation.
Since in fact there has been no reduction of funds as a result of
desegregation, this test is not violated.
We do not believe it was the intention of OE to impose the test which
the Regional Contracting Officer seeks to apply. If it was, contrary to
our understanding, OE's intent to do so, and assuming without deciding
that it legally could have done so under the statute, then it was the
responsibility of OE to make the test intended adequately explicit
rather than the responsibility of the grantee to divine an intent
nowhere communicated in the regulations.
We therefore hold that the applicable statutory and regulatory tests
prohibiting the supplanting of funds have not been violated. This is
not a determination concerning the no supplant rule in other contexts,
where the statutory test may be different, the regulations different,
and the character of the program different. The decision is reached on
the basis of the explicitly emergency nature of the program, the
specific statutory test and the specific regulatory amplification.
Conclusion
It is therefore concluded that the Board has jurisdiction.
With respect to the grantee's use of consultants, the grantee
properly relied on Article 26 of the General Terms and Conditions which
expressly deals with the use of consultants and which does not require
prior approval before employing consultants at less than $100 a day as
is here the case. The Regional Contracting Office has misapplied
Article 18 of the General Terms and Conditions dealing with services
contracts which we construe as applying to contracts to perform a
significant part of the services to the public affected contemplated by
the grant and not to contracts for services to the grantee, and
particularly not to consultant contracts which are separately governed
by Article 26. To the extent that there is doubt about this conclusion,
the general rule that an ambiguity should be construed against the
drafter should be applied.
With respect to the question of supplanting, we find that the
Regional Contracting Officer is relying on too narrow a concept of what
constitutes supplanting and that there is no charge of supplanting in
the sense which we consider appropriate. To the extent that the concept
of supplanting contains an ambiguity, it is the responsibility of the
Government if it wishes to enforce a concept of supplanting as narrow as
this, to state it (if indeed this may be done consistently with the
statutory intent) much more clearly than it has as yet done.
The appeal is sustained on both items.
OCTOBER 04, 1983